HRL Holdings Pty Ltd v L J Nanyang Group Pty Ltd [2010] NSWSC 729 (1 July 2010)

Last Updated: 7 July 2010

NEW SOUTH WALES SUPREME COURT

CITATION:
HRL Holdings Pty Ltd v L J Nanyang Group Pty Ltd [2010] NSWSC 729
This decision has been amended. Please see the end of the judgment for a list of the amendments.

JURISDICTION:
Equity Division
Corporations List

FILE NUMBER(S):
2010/138605

HEARING DATE(S):
01/07/10

JUDGMENT DATE:
1 July 2010

EX TEMPORE DATE:
1 July 2010

PARTIES:
HRL Holdings Pty Ltd - First Plaintiff
Yun Fen Wang - Second Plaintiff
L J Nanyang Group Pty Ltd - First Defendant
Wen Tao Lu - Second Defendant
Winter Realty Pty Ltd - Third Defendant
Wu Tong Tree Pty Ltd - Fourth Defendant
Rita Wei Hong Guo - Fifth Defendant

JUDGMENT OF:
Barrett J

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable



COUNSEL:
Mr L Gor - Plaintiffs
Second Defendant in person
Fifth Defendant in person

SOLICITORS:
Watkins Tapsell -Plaintiffs
Second Defendant in person
Fifth Defendant in person


CATCHWORDS:
CORPORATIONS - statutory derivative action - statutory criteria - meetings of members - whether general meeting purporting to remove director validly convened and held - no matter of principle

LEGISLATION CITED:
Corporations Act 2001 (Cth), ss 236(1)(a), 237, 249H, 249J, 250D,

CATEGORY:
Principal judgment

CASES CITED:


TEXTS CITED:


DECISION:
1. I make orders 2, 3, 8, 10 and 11 in the further amended originating process filed in court today.
2. The balance of the further amended originating process is to stand over before the Corporations Judge at 10am on 26 July 2010.
3. I order that the plaintiffs' costs of the proceedings to date be paid by the second, third and fifth defendants.



JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST


BARRETT J

THURSDAY 1 JULY 2010

2010/138605 HRL HOLDINGS PTY LTD v L J NANYANG GROUP PTY LTD

JUDGMENT

1 These proceedings concern a company named L J Nanyang Group Pty Limited.

2 It is necessary to refer at the outset to another company HRL Holdings Pty Ltd. There are two shareholders in HRL, Ms Wang and Ms Guo. They are also the directors, having been appointed in May 2008, at which time the original director Mr Lu resigned.

3 Also, in May 2008, HRL became the holder of 65 percent of the shares in the subject company Nanyang. Ms Wang was appointed a director. The other director was Mr Lu. He had been in office since 2006.

4 The remaining shares in the Nanyang are held as to 25 percent by Winter Realty Pty Limited and 10 percent by Wu Tong Tree Pty Limited. Mr Lu is the sole director and majority shareholder of Winter Realty, Ms Wu is the controller of Wu Tong Tree Pty Limited.

5 It is relevant also to note that Mr Lu and Ms Guo are husband and wife.

6 Ms Wang's affidavit and that of her son traverse numerous matters concerning the activities and finances of the three companies. The companies are involved in restaurant businesses.

7 The relief sought in these proceedings, however, requires attention to a very confined set of facts concerning events on 14 May 2010. I need to emphasise that the question in this case and the factual inquiry it entails are both very narrow indeed.

8 On the morning of 14 May 2010 Ms Wang was invited to go to the home of Mr Lu and Ms Guo. The agreed time was 7.30 pm that same day. The invitation was issued by telephone by Ms Guo. There was, according to Ms Wang, reference to a need to talk about a renovation, but Ms Guo says she had, in issuing the invitation, referred to Ms Wang's refusal to pay needed money.

9 Because of traffic problems, she says, Ms Wang, accompanied by her husband and son, was late in arriving at the home of Ms Guo and Mr Lu. They arrived at about 8pm. Ms Guo was apparently alone in the house. She gave Ms Wang a piece of paper which purported to be the agenda for a "Special Annual General Meeting" of Nanyang containing items as follows:

“(1) Raise capital of the Company (L J Nanyang Group P/L) $100,000 - $120,000 to meet the Company’s urgent needs.

(2) Dismiss current management team. The company will be managed by director only.

(3) Remove Yun Fen Wang from Board immediately.”

10 Ms Guo told Ms Wang that Mr Lu had been there earlier but had had to leave and that they had passed resolutions in terms of the agenda items.

11 Ms Wang's affidavit contains an account of the conversations that then occurred:

“82 Rita [Ms Guo] then gave me a piece of paper and said:

‘It is a minute of the meeting.’

...

83 The document is in English. I gave it to my son and he translated its contents to me in Mandarin in my presence. I said to Rita:

‘You have no right to expel me. I do not agree with this document.’

84 I heard Daniel say to Rita:

‘It is illegal you can not do that. My mum has not come for that. If you want to have a shareholders’ meeting you must inform us before hand.’

85 Rita said:

‘Because you and I each own 32.5% shares, when you are not present only Wen and I need to vote. If we agree then it can be passed.’

86 I am very angry. I said:

‘You are dishonourable. Even if I am not your friend you can not treat me like this. You must be fair. You will be punished by heaven.’

87 Rita just smiled and said:

‘Whatever you do, I don’t care.’

88 I then left with Daniel and my husband. When we reached the door Rita said:

‘If you don’t agree with this you come back and we talk about it again. Can you give me the paper back?’

I said:

‘No.’

89 Rita was not holding any other papers. I did not see any other company papers in the house.

90 I did not see anyone else at the house. Rita mentioned that Wen and their son had been there earlier. She did not mention that anyone else had been there.”

12 Ms Guo spoke from the bar table and gave a somewhat different account of certain aspects of the conversation, but not in any way that affects the essentially important facts which, as I have said, are very narrow for the purposes of this case.

13 It is the contention of Ms Wang that the events of the evening of 14 May 2010 were ineffective as shareholders' resolutions or other corporate actions of Nanyang. The persons entitled to attend a general meeting of Nanyang were HRL, Winter Realty and Wu Tong Tree Pty Limited. There is no evidence that any of these companies was present by a proxy, by a representative appointed under s 250D of the Corporations Act 2001 (Cth) , or by a duly constituted attorney. There is no evidence that any of them was given notice of the meeting in conformity with the compulsory rules in s 249H and 249J of the Corporations Act. Furthermore, the items 1 and 2 in the agenda were matters ordinarily within the exclusive province of a board of directors and in respect of which a general meeting of members could not act.

14 Ms Wang, not being a member of Nanyang, has no direct standing to complain of deficiencies in proceedings within Nanyang. For that reason she has sought leave to bring the present proceedings on behalf of HRL which, as a member of Nanyang, does have standing. Her application in this respect is brought under s 237 of the Corporations Act.

15 For reasons of efficiency in these quite confined proceedings where everyone but Ms Wang is not legally represented, I chose to follow the generally undesirable course of combining the hearing of the s 237 application with the hearing of the substantive case. That was made clear in the transcript on the last occasion. Such a procedure should not be followed otherwise than in special circumstances. As a general rule the title of the plaintiff to sue in a representative capacity should be established in advance of the hearing of the substantive case.

16 Ms Wang's capacity to have leave under s 237 to sue on behalf of HRL comes from her being a member and officer of HRL, see s 236(1)(a). I therefore address the several criteria satisfaction of which is, by s 237(2), indispensable to the grant of leave.

17 In relation to the criterion in 237(2)(a), I am satisfied that it is probable that HRL will not bring the proceedings that Ms Wang wishes to see brought against the defendants in relation to the relevant matters within Nanyang. This is because Ms Guo is the other shareholder and director of HRL, and it is actions orchestrated by her in relation to Nanyang that Ms Wang wishes to see HRL attacked. Indeed, Ms Guo explicitly said in a document admitted into evidence that she will not co-operate in having HRL bring proceedings.

18 I address next the criterion in s 237(2)(b). I am satisfied that Ms Wang is acting in good faith. She genuinely believes that a wrong has been done through the events of 14 May 2010 and should be put right. The evidence does not show any lack of good faith.

19 Moving then to the criterion in s 237(2)(c), I am satisfied that it is in the best interests of HRL that Ms Wang be granted leave under s 237 since otherwise the perceived wrong within Nanyang, which is a perceived wrong to the whole of that company's constituency by abuse of corporate processes, will not be addressed. Furthermore, there is evidence of a hire purchase agreement and a lease of premises under which adverse consequences for Nanyang may flow from a change of control, so that it is in the best interests of that company to be able to show that any representation of change of control or appearance of change of control based on the 14 May 2010 events is inaccurate.

20 As to the next criterion posed by s 237(2)(d), it is beyond doubt there is a serious question to be tried as to the efficacy of the steps purportedly taken within Nanyang on 14 May 2010. That criterion is therefore satisfied.

21 In relation to the next criterion in s 237(2)(e), I note that all relevant persons have been served in these proceedings and that the relevant parties have attended today, so that due notice may be taken to have been received.

22 Based on my findings in relation to the 237(2) matters, Ms Wang must have leave nunc pro tunc to bring those proceedings on behalf of HRL.

23 Turning to the substantive complaint, it is sufficient to say that, because of the serious deficiencies to which I have already referred, the purported general meeting of Nanyang on 14 May 2010 was a nullity and that no resolution in terms of the items in the agenda document ever became effective or binding upon or within Nanyang.

24 It follows, in particular, that Ms Wang was not removed as a director of Nanyang on 14 May 2010. It also follows that she has continued and still continues as a director of Nanyang and must be recognised as such.

25 Ms Wang is entitled to relief from the court on the basis that she continues to be a director of Nanyang.

26 The suggestion made by both Ms Guo and Mr Lu about mere procedural irregularities in the proceedings of 14 May 2010 is one that obviously cannot be accepted. The deficiencies were of a gross and fundamental kind extending far beyond mere matters of procedure.

27 Ms Wang makes a subsidiary claim. It relates to access to books and records of both HRL and Nanyang. Mr Gor's written submissions in paragraph 26 identify the various statutory provisions under which Ms Wang is entitled to access as against the respective companies, given the positions she occupies in relation to them. Those submissions will be kept with the court file. They accurately summarise the statutory bases of Ms Wang's entitlement access to the documents she seeks. The orders which she seeks will be made.

28 I need to note that the defendants elected not to obtain legal assistance in relation to the proceedings. I understand their position, and they mentioned that financial circumstances did not enable them to do so. It is unfortunate that they were unable to obtain legal advice because it is virtually certain that any lawyer would have told them that they had no defence to this particular claim, which I say again is a narrow claim based wholly and solely on the events of the evening of 14 May 2010. Instead, the matter has been fully argued in a way that could have been avoided.

29 Ms Guo and Mr Lu have spoken in some detail today about complaints and grievances they have against Ms Wang and her husband. These relate particularly to satisfying the capital needs of the restaurant businesses and to the question whether Ms Wang and her husband are willing to provide financial support in ways that apparently Ms Guo and Mr Lu thought they would or had committed themselves to do.

30 None of those matters is relevant to the question that was before me today, that is the narrow question about the events of the evening of 14 May. Whether the aspects about which Ms Guo and Mr Lu spoke at some length and with some feeling give rise to rights or causes of action or legitimate complaints on their part that they may be able to pursue against Ms Wang or her husband, or both is a matter for them.

31 Ms Guo and Mr Lu have made it clear they do not think that Ms Wang is a proper person to be a director of Nanyang because she and her husband are not putting up capital as she should be. These are matters that are not relevant to this case. The court is not concerned here and now to judge whether people are good directors or bad directors, or whether they are putting up capital as other people think they should.

32 I make orders 2, 3, 8, 10 and 11 in the further amended originating process filed in Court today. In that further amended originating process there are claims in paragraphs 8A and 8B which have not been addressed today and which Ms Wang may wish to pursue later. It will therefore be appropriate not only to make the orders I have made but also to adjourn the balance of the proceedings for some time with liberty to apply.

[DISCUSSION ABOUT DATES]

33 The balance of the further amended originating process is to stand over before the Corporations Judge at 10am on 26 July 2010.

[SUBMISSIONS ON COSTS]

34 I order that the plaintiffs' costs of the proceedings to date be paid by the second, third and fifth defendants.

**********

AMENDMENTS:


06/07/2010 - Typo - Paragraph(s) Para 20 - "s 237(2)(b)" changed to "s 237(2)(d)"


LAST UPDATED:
6 July 2010